Bank of Nova Scotia Earnings - Q3 2026 Analysis & Highlights
Bank of Nova Scotia reported record Q3 2026 earnings driven by strong performance across all business lines, with significant progress on strategic initiatives including business mix improvement, fee income growth, and capital deployment, while management highlighted resilience in the Canadian economy despite trade uncertainties and outlined continued momentum into fiscal 2027.
Key Financial Results
Quarterly earnings of CAD 3 billion with diluted earnings per share of CAD 2.28, up 21% year-over-year.
Return on equity of 14.2%, up 170 basis points year-over-year, exceeding the bank's medium-term 14%-plus target sooner than projected.
Net interest income grew 12% year-over-year as net interest margin expanded 18 basis points from higher margins across all business segments.
Noninterest income was up 21% year-over-year primarily from higher banking and wealth management revenues, underwriting and advisory fees, and other fees and commissions.
Expenses grew 14% year-over-year, mainly due to higher performance and share-based compensation and technology spend which grew 16% to CAD 1.5 billion.
Pretax pre-provision profit growth of 18% year-over-year.
Productivity ratio improved by 90 basis points year-over-year to 52.5%, with positive year-to-date operating leverage of 3.9%.
Average loans increased 4% year-over-year while deposits increased 5%.
Business Segment Results
Canadian Banking earnings of CAD 1.1 billion, up 12% year-over-year with return on equity improving 160 basis points sequentially to 19.4%.
Canadian Banking loans grew 3% year-over-year, driven by 4% growth in mortgages and 3% growth in commercial and small business loans, while personal loans grew 1%.
Day-to-day and savings deposits grew 1% year-over-year, in line with strategy.
Net interest margin expanded for the fifth consecutive quarter, up 2 basis points sequentially, driven by increases in both loan and deposit margins.
Noninterest income was up 11% year-over-year from high mutual fund distribution fees, credit card revenues, and insurance income.
Canadian Banking PCL ratio decreased 8 basis points sequentially to 42 basis points.
Global Wealth Management earnings of CAD 515 million, up 23% year-over-year with Canadian earnings up 27% and international up 4%.
Spot AUM and AUA grew 16% and 13% year-over-year, respectively, from market appreciation and higher net sales.
Global Wealth Management revenues were up 18% year-over-year from higher mutual fund fees, net interest income, and brokerage revenues.
Global Wealth Management net sales for the quarter came in at CAD 3 billion, a record Q3, up 14% versus Q3 2025 and marking the eighth consecutive quarter of positive net flows.
Global Banking and Markets earnings were CAD 647 million, up 37% year-over-year.
Global Banking and Markets revenue grew 32% year-over-year with capital markets revenues up 33% and business banking up 30%.
Global Banking and Markets net interest income was up 34% year-over-year primarily due to higher margins and higher client-driven capital markets activities.
Global Banking and Markets noninterest income was up 31% year-over-year due to higher underwriting and advisory fees and client-driven trading revenue.
Global Banking and Markets loans grew 5% year-over-year with Canadian loans growing 7% quarter-over-quarter and 9% year-over-year.
Global Banking and Markets deposits grew 12%, helped by investments in global transaction banking.
International Banking earnings of CAD 725 million, up 6% year-over-year.
International Banking revenue increased 7% year-over-year with net interest income up 3%, while noninterest income increased 18%.
International Banking deposits were up 6% year-over-year with personal deposits growing 4% and non-personal growing 7%.
International Banking loans were down 1% year-over-year as non-retail loans declined 7%, while retail loans grew 5%.
International Banking PCL ratio declined 28 basis points sequentially to 138 basis points, mainly driven by lower impaired PCLs.
Capital Allocation
CET1 capital ratio remained strong at 13.1% after deploying 23 basis points to organic growth and repurchasing 8.6 million shares in the quarter, representing 20 basis points of capital usage.
Over the past 12 months, the bank returned CAD 8.3 billion in capital to shareholders through share buybacks and dividends.
Capital deployment priorities continue to be organic growth followed by share buybacks and strategic tuck-in acquisitions that fill a well-defined need.
The bank remains focused on deploying accumulated capital in support of Canada's economy, including helping fund areas of national importance such as natural resources, critical infrastructure, AI, and defense.
Total risk-weighted assets was CAD 493 billion, up CAD 11 billion quarter-over-quarter, excluding effects, mainly relating to higher credit risk.
Macroeconomic Environment
The Canadian economy has proven to be much more resilient than expected despite evolving trade relationships and tariffs imposed last year.
Current tariffs represent 5% of exports with a small impact on GDP of 0.2 to 0.3, and the government is rolling out support programs for impacted sectors.
Tariff exposure represents less than 1% of the bank's total loans, based on the latest measures announced.
The bank's scenarios and allowances already reflect a range of outcomes including downside scenarios that modeled Canadian tariff rates of 12.5% and up to 25% with full retaliation.
Job growth numbers, fiscal capacity on the back of oil prices, and activity from the Prime Minister's agenda provide a pretty good backdrop for the Canadian economy.
Geopolitical developments, elevated energy costs contributing to increased inflation, and persistent trade uncertainty continue to be monitored.
Growth Opportunities and Strategies
Commercial loans in Canadian banking grew 3% sequentially in Q3 after growing 2% in Q2, with growth expected to continue supported by investments in verticals where the bank has been historically underpenetrated.
Mid-market and small business lending grew 3% quarter-over-quarter and 10% year-over-year, with the bank adding nearly 700 mid-market clients, up almost 85% year-on-year.
Credit card balances were up 3% quarter-over-quarter, with the premium mix of new card acquisitions now at 45% versus 35% last year.
The bank retained over 90% of retail GIC maturities year-to-date, with flows either staying in Canadian banking or moving into retail mutual funds where net sales are CAD 4 billion year-to-date, up nearly 2.5x from last year.
Record revenue in Canadian banking was helped by the fifth consecutive quarter of margin expansion and continued strong fee income growth.
Retail loans in international banking grew by approximately 5% year-over-year, with growth expected to continue as non-retail loan book growth remains restrained by design.
International banking deposits up 1% quarter-over-quarter and 6% year-over-year, with earnings remaining above the CAD 700 million mark for the third consecutive quarter.
Pretax pre-provision earnings in international global banking and markets business were up 13% year-over-year, helped by the capital markets platform focused on delivering capital-light higher value solutions.
Global wealth management net sales for the year-to-date are now higher than full year fiscal 2025.
Total closed referrals between Canadian banking and Canadian wealth management came in at CAD 14 billion year-to-date, with closed referrals between commercial banking and wealth at CAD 4.5 billion or 33% higher than the same period last year.
The bank ranked third among bank-owned peers in long-term retail mutual fund sales, up from fifth in the same quarter last year and sixth at Investor Day.
International wealth business earnings were up 14% in the Caribbean and 15% in Mexico quarter-over-quarter.
Global banking and markets loans were up 7% quarter-over-quarter as growth returns after a period of optimization.
The bank acted as joint lead and bookrunner on the two largest debt capital markets deals ever done in Canada, the largest asset-backed securities deal since establishing the structured credit platform, bookrunner on the largest IPO in Canada since 2021, and first lead-left leveraged finance deal.
Scotia Intelligence, the bank's centralized data and AI platform, was expanded to launch new capabilities to improve productivity and free up capacity for higher value work.
Scotia Intelligence knowledge agents were launched, providing employees with AI-powered solutions that facilitate easy access to institutional information.
Scotiabank joined with Lightworks, Sun Life, and TELUS to launch the AI Consortium, a collaborative Canadian model designed to help large regulated organizations build and govern critical control systems required to deploy AI safely.
International banking is targeting revenue growth within the 6% to 8% level on the revenue front for 2027 and beyond.
International banking expects PTPP to grow sequentially year-on-year at 8% or above, positioning the business to deliver double-digit earnings in 2027 and beyond.
International banking ROEs are sitting north of 16% with expectations for continued improvement.
Global Banking and Markets is building market-leading capital markets capabilities supporting the international footprint with an extraordinary team aligned with the global strategy.
Global Banking and Markets is now covering the sovereign space with structured solutions and liability management, participating in domestic capital markets in a way that was not possible before.
Global Banking and Markets revenue on the capital markets front is growing at 40% without necessarily absorbing material capital.
The bank's focus on deposits in Global Banking and Markets is very intentional, with investments in global transaction banking to capture core operating deposits.
Canadian Banking expects to continue to improve return on equity and close the gap with peers through steady improvement in business mix, fee income growth, and ongoing productivity gains.
Canadian Banking expects to hit 20% plus ROE over time as mid-market and business banking businesses continue to develop.
The bank is investing in US capabilities through organic growth and small acquisitions like MapleMark, a small commercial bank based in Texas, to build out capabilities and attract deposits.
The bank's priority in the US is in capital markets and wealth management businesses, not in commercial or retail banking.
Competitive Landscape
The bank is ranked third among bank-owned peers in long-term retail mutual fund sales, up from fifth in the same quarter last year.
The bank has been able to capture the power of synergies and scale through regionalization efforts implemented in the first two years of transformation in international banking.
The bank is building a very durable franchise that is very broad-based in Global Banking and Markets, deemphasizing some businesses or regions while doubling down on building new products and services.
Financial Guidance and Outlook
The bank expects to finish the year strong and enter fiscal 2027 with momentum.
The bank does not see 14% return on equity as a ceiling and expects to continue to improve.
In Q4, certain international banking portfolios are migrating from the standardized approach to the AIRB approach that will reduce capital ratios by approximately 15 basis points, with the bank expecting to absorb this impact and maintain CET1 ratio around 13% next quarter.
Chile announced a reduction in the tax rate by 4% over the next three years to 23%, which will result in lower taxes in future years but also require a onetime deferred tax asset write-down in Q4.
Impaired PCLs are expected to trend down in the latter half of the year, with performance developing largely as expected.
The bank will continue to monitor tariff developments and reassess new developments as they occur.
The bank's first port of call for growing in the US is through Travis' Global Banking and Markets business, with organic growth opportunities across Canada, the US, and Mexico.
The bank sees lots of opportunity in Global Wealth Management, which is growing at 15% to 20% for the last three or four years.
Global Banking and Markets pipelines remain quite strong, with the bank proving quarter-over-quarter that when markets are constructive it can capitalize on that.
Credit Quality and Risk Management
All-bank provisions were CAD 1.1 billion or 56 basis points, down 10 basis points quarter-over-quarter.
Impaired provisions were CAD 1 billion or 52 basis points, down 9 basis points quarter-over-quarter, driven mainly by lower international banking provisions related to a single corporate account.
Performing provisions were 4 basis points, down 1 basis point quarter-over-quarter.
Allowance for credit losses increased to CAD 7.6 billion or 97 basis points, up 1 basis point quarter-over-quarter.
Gross impaired loans increased 1 basis point quarter-over-quarter to 100 basis points with modest increases across business lines.
In Canadian banking retail, performing PCLs were CAD 24 million, down CAD 10 million quarter-over-quarter, reflecting more favorable forward-looking indicators.
In Canadian banking retail, impaired provisions were CAD 345 million, down CAD 56 million, driven by lower net write-offs and lower impairments in auto.
Mortgage clients remain resilient, with the overall retail portfolio quality remaining strong with an average FICO score of 798.
International banking took an incremental provision of CAD 57 million related to the Brazil account this quarter.
International banking retail provisions were lower quarter-over-quarter, reflecting improved performance in Mexico and improved delinquency performance in Chile.
Delinquency trends are encouraging, though the bank continues to monitor the sustainability of improvements.
